Correlation Between Houston American and Mexco Energy

Can any of the company-specific risk be diversified away by investing in both Houston American and Mexco Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Houston American and Mexco Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Houston American Energy and Mexco Energy, you can compare the effects of market volatilities on Houston American and Mexco Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Houston American with a short position of Mexco Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston American and Mexco Energy.

Diversification Opportunities for Houston American and Mexco Energy

0.27

Correlation Coefficient

Houston American  Mexco Energy

Modest diversification

The 3 months correlation between Houston and Mexco is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Houston American Energy and Mexco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mexco Energy and Houston American is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Houston American Energy are associated (or correlated) with Mexco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mexco Energy has no effect on the direction of Houston American i.e., Houston American and Mexco Energy go up and down completely randomly.

Pair Corralation between Houston American and Mexco Energy

Given the investment horizon of 90 days Houston American Energy is expected to generate 3.21 times more return on investment than Mexco Energy. However, Houston American is 3.21 times more volatile than Mexco Energy. It trades about 0.08 of its potential returns per unit of risk. Mexco Energy is currently generating about -0.18 per unit of risk. If you would invest  127.00  in Houston American Energy on August 3, 2024 and sell it today you would earn a total of  11.00  from holding Houston American Energy or generate 8.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Houston American Energy  vs.  Mexco Energy

Houston American Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Houston American Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Houston American may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Mexco Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mexco Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Mexco Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Houston American and Mexco Energy

The main advantage of trading using opposite Houston American and Mexco Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Houston American position performs unexpectedly, Mexco Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Mexco Energy will offset losses from the drop in Mexco Energy's long position.

The idea behind Houston American Energy and Mexco Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.